PFCB’s Co-CEO Bert Vivian presented at an investor conference this afternoon and provided some commentary on 3Q trends and a first glimpse at 2010. Mr. Vivian maintained his less than encouraging near-term outlook for the industry but appeared optimistic about the long-term prospects at PFCB. In 2Q09, same-store sales growth declined 6.8% at the Bistro and was relatively flat at Pei Wei. At that time, management had said that the Bistro had underperformed relative to internal targets while Pei Wei outperformed. Looking at 3Q09, Mr. Vivian stated that sales trends at both the Bistro and Pei Wei are similar to what we saw in 2Q with the Bistro continuing to struggle.
The company is currently planning for muted development in 2010 with about 4-5 Bistros in the pipeline and about 2 Pei Wei units. Management is exploring additional sites for Pei Wei development, primarily in existing markets, but these sites are most likely slated for 2011 openings. So, overall, new unit development will come down again in 2010.
Mr. Vivian stated that he has to believe that the environment will get better in 2010. That being said, with reduced unit growth, he is not expecting much in the way of revenue growth. He even said, “If comps somehow magically went plus 10%, you’d probably find me dancing naked in the streets.” Instead, he thinks that -5% to +5% revenue growth is a more reasonable range. Assuming flat revenues in 2010, Mr. Vivian expects that based on the company’s current outlook that cost of sales will be somewhat favorable relative to 2009 (outside of produce which is not contracted), PCFB will be able to hold labor and cost of sales (60% of restaurant expenses) flat as a percent of sales.
If these revenue and cost expectations prove to be right, the company should continue to generate more free cash flow in 2010 (guided to $70-$80 million in free cash flow in 2009). With this cash, PFCB will continue to pay down debt (and expects to be debt free by mid 2010) and buy back shares. Additionally, Mr. Vivian said that management could discuss paying a dividend.